CAMBIO: LUMA’s work to run power grid spikes costs for Puerto Rico

Energy nonprofit organization CAMBIO raised red flags over the increase in expenses for outside consultants in the operation of Puerto Rico’s electrical grid after LUMA Energy took control of the transmission and distribution system last year.

This, despite the Puerto Rico Public-Private Partnerships Authority’s (P3 Authority) executive director’s previous emphasis that the contract for the privatization of the electrical grid would cut the expenses for external consultants and improve administrative efficiency, the nonprofit stated, citing published reports.

Financial documents filed by LUMA with the Puerto Rico Energy Bureau and those that the Fiscal Agency and Financial Advisory Authority (AAFAF, in Spanish) has made public regarding the Puerto Rico Electric Power Authority (PREPA), during Fiscal 2022, LUMA spent $103.5 million in consultants and legal fees.

LUMA’s expenses amount to a 55% increase compared with Fiscal 2021, when PREPA spent $67 million in external consultants and legal fees, and a 125% increase compared with Fiscal 2020, when PREPA spent $46 million. In both cases, legal fees and expenses related to bankruptcy proceedings have been excluded, CAMBIO officials stated.

“They sold us this idea that privatizing would bring knowledge and expertise to reduce our dependence on outside contractors, but we see the opposite,” said CAMBIO President Ingrid Vila.

“LUMA hires external consultants and legal services for $100 million, which are additional to the $117 million it already receives under its privatization agreement. Clearly LUMA is being paid for expertise it doesn’t have and it ends up subcontracting, raising the costs of its service,” she said.

The organization also denounced the lack of transparency related to the contracts signed by LUMA as many of them cannot be found on the website of the Office of the Comptroller.

For example, while LUMA spent $7.1 million in legal fees during the 2022 fiscal year, the contracts for legal services available on the Comptroller’s registry of contracts total $250,000 for that year, she said.

“We sent a letter to the Comptroller urging her to demand that LUMA registers its contracts and complies with the law. LUMA is spending public funds and the people have a right to know who is receiving that money and for what kind of services,” said Cathy Kunkel, energy program manager at CAMBIO.

LUMA Energy responded in a statement that it “is deeply committed to the careful use of customer and public funds, and the equally important goal of doing all that is necessary to rebuild, repair, and modernize the electric transmission and distribution system, including utilizing our highly trained workforce and the best experts and advisors available.”

“In this pursuit, LUMA has NEVER raised or proposed raising customer rates and we have consistently has operated within our budget. In fact, LUMA’s budget has decreased in FY23 from the previous year in order to remain fiscally prudent. And LUMA did this while improving customer service, safety, rebuilding the system and accelerating renewable energy,” it further stated.

“With respect to legal and consulting expenses, LUMA works through a strict expense review process that is independently audited and approved by third-party actors who reviewed all expenses and invoices related to the transition between LUMA Energy and PREPA,” it added.

Puerto Rico Justice Dept. endorses LUMA’s contract
Meanwhile, the P3 Authority revealed that the Puerto Rico Justice Department confirmed the legality of the government’s contract with LUMA Energy to operate PREPA’s transmission and distribution.

The Justice Department “confirmed the legality of the contract by establishing that it is not contrary to law, morality or public order, and does not contain clauses or provisions contrary to law, morality or public order,” P3 Authority Executive Director Fermín Fontanés said.

Puerto Rico’s legal agency analyzed the legality of the contract against existing laws: Act 29 (Public-Private Partnership Act), Act 120-208 (Act to Transform Puerto Rico’s Electric System), and Puerto Rico’s Civil Code.

“We note that the process and subsequent contracting were carried out in a thoughtful manner, addressing every detail and with the intention and genuine purpose of having the highest public interests of Puerto Rico as our goal,” the Justice Department stated in the opinion that the P3 Authority revealed.

“From the documentation examined, it is possible to deduce that the process that led to the selection of LUMA as proponent and the subsequent signing of…the agreement was one in strict compliance with the P3 Act, the legislation that establishes public energy policy in Puerto Rico and the Financial Oversight and Management Board for Puerto Rico’s requirements,” the opinion stated.

Fontanés said the contract between the government and LUMA Energy “has an important role as a key player in the transformation of the electricity system, and its terms and conditions are the product of a complex and extensive negotiation process.”

“LUMA’s selection as operator of the T&D system represents an important milestone in the transformation of the electrical system and was the result of a competitive bidding process that was carried out in accordance with the highest standards and that included the participation from several government entities, including the P3 Authority, PREPA, the Puerto Rico Energy Bureau and the Oversight Board,” he said.